Maren Lurweg: Dogmengeschichtliche Entwicklung der Kaufkrafttheorie der Löhne

The relationship between wages and employment growth was one of the most widely discussed macroeconomic issues in the last century and even today, it is the subject of ongoing debate. Proponents of the so-called Purchasing Power Theory of Wages suggest that, particularly in recessionary periods, rising wages increase employment through raising the total demand for goods and services. The positive demand-side effects of wage increases therefore allegedly outweigh the negative supply-side effects. Others argue the converse. From their point of view, a rise in wages leads to higher labour costs, firms accordingly substitute labour for capital and outsource production to countries with a lower wage level. Ultimately, this process would lead to a decline in employment. A brief look at public and political debate suggests that there is no societal consensus on the direction of impact of higher wages on employment. This paper reviews the debate on the Purchasing Power Theory of Wages which can be traced back to the early 1920’s. The lines of argument of both proponents and opponents of this theory are presented. It is shown that the Purchasing Power Theory has neither been verified nor disproved unequivocally at a theoretical level. Furthermore, there is a surprising lack of empirical work on the relationship between wages and employment growth.

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